Question

Assume that new technology develops a substitute for DVDs. How will the price elasticity of demand for DVDs be impacted?

a. There will be no change in the price elasticity of demand for DVDs.
b. The appearance of a substitute for DVDs with increase the elasticity coefficient for DVDs.
c. The appearance of a substitute for DVDs with decrease the elasticity coefficient for DVDs.
d. The impact on price elasticity of demand for DVDs is uncertain but the demand for DVDs will increase.
e. The impact on price elasticity of demand for DVDs is uncertain but the total revenue for sellers of DVDs will increase.

Answer 1

b. The appearance of a substitute for DVDs with increase the elasticity coefficient for DVDs.

Step-by-step explanation:

"Price elasticity of demand" refers to the proportion of a product's percentage change in demand quantity in relation to the percentage change in the good's price. Rates are fixed in a market economy by commodity supply and demand factors.

Markets consist of producers and consumers. Our analysis of buyers' behaviour is focused on demand curves; supply curves reflect sellers' behaviour. The lesser the good's price, the greater the quantity consumers want to buy, as per the “law of demand”.

If a new technology substitutes the DVD, which leads to decrease in their demand. This further leads to the increase in price. Assuming the elasticity is 3.0, a price increase of 10 percent will lower the demand quantity by 30 percent (30 percent/10 percent or 3.0). Thus, the DVD’s elasticity coefficient will increase.